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Russia turns Europe oil tap back on

Moscow had stopped pumping oil via Belarus after accusing it of siphoning off crude.

Fri Jan 12 2007 14:42:12 GMT+0000

Oil refineries in many EU states reduced their output due to the Belarus-Russia oil dispute [EPA]

"The disruptions in oil supplies have yet again undermined Russia's efforts to establish itself as a reliable source of fuel supplies to Europe," Deutsche Bank Group analysts wrote in a note to investors.

Dispute

The dispute centered on Russia's decision last month to impose a hefty duty on oil exports to Belarus.

Moscow complained that the previous duty-free regime cost the Russian budget almost US$4 billion a year in lost revenues.

Belarus allegedly took billions in revenues by refining cheap Russian oil and selling them at a large profit to European markets.

"The disruptions in oil supplies have yet again undermined Russia's efforts to establish itself as a reliable source of fuel supplies to Europe"

Deutsche Bank Group

As a result, Russia stopped pumping oil to Europe via the Druzhba, or "Friendship" pipeline on Monday, and accused its neighbour of siphoning off oil.

By Tuesday, the stoppage affected supplies to Ukraine, Germany, Poland and other East European nations.

With the EU voicing alarm and Russia threatening a trade war against its former ally, the two countries' presidents, Vladimir Putin and Alexander Lukashenko, held talks by telephone on Wednesday to resolve the crisis.

The Belarus government announced the cancellation of the US$45 per ton tax, and Sergei Sidorsky, the prime minister, said he would meet with his Russian counterpart in Moscow on Thursday.

It remained unclear what Russia had promised in return.

Sidorsky said that it was important to "remove all disagreements in bilateral trade which have recently arisen."

EU criticism

EU leaders have criticised Russia for the sudden pipeline shutdown, which has renewed calls for a diversification of EU energy supplies.

Jose Manuel Barroso, the EU Commission President, branded the supply dispute as "unacceptable" and bad for both Russia's and Belarus' credibility as suppliers and transit countries.

Andris Piebalgs, the EU energy chief, warned that the dispute will have lingering effects on the EU's relations with both nations.